The Problem 1

Chapter 1

THE PROBLEM

Background of the Study

Environmental Accounting provides cost-effective

compliance with environmental regulation and self-imposed

environmental policies, simultaneous reduction of costs and

environmental impacts via more efficient use of energy,

water, and materials in the operations, and evaluation and

implementation of effective and environmentally sensitive

programs for ensuring and organization’s long term

competitiveness.

However, there is an increasing trend of organizations

ever-increasing environmental-related costs, communication

to address environmental problems between accounting and

other departments are not well developed, environmental

costs are often hidden in overhead accounts or not found in

accounting records, materials use, flow and cost

information often are not tracked adequately, and

investment decisions to address environmental concerns are

often made on the basis of incomplete information.

Need therefore arises to investigate the possibility

of the integration of environmental accounting in the

management and operations of University of Baguio.

 The Problem 2

A university is a place where people, students,

faculty, and administrative staff interact together.

Education related services are provided by the university

through the use of labor and supplies. These supplies are

products of manufacturing natural resources. Generation of

solid and chemical wastes is also the result of the

services provided by a university.

Reactive approach is fast becoming redundant as

environmental problems are becoming complex and

multidimensional. What is needed in the present scenario is

a professional and systematic approach towards achieving

environmental sustainability. Universities, being the hub

of activity for innovation and ideas, are the perfect place

for instilling the idea of sustainability in young minds

and at the same time, creating societal awareness on how

sustainability can be integrated in day-to-day life.

Globally, universities make a significant contribution to

the society and therefore, have a societal accountability

for sustainable use of resources and environmental

protection.

A research by Sekhon (2014) suggests that while

starting sustainable practices on a campus, the focus

should be typically on several key issues, including:

1. energy usage,
 The Problem 3

2. water consumption and treatment,

3. the optimum use of resources,

4. green curriculum development,

5. change in purchasing policies, and

6. administrative operations.

Some of the above areas enumerated above are the focus

of this study. Specifically, energy usage, water

consumption and treatment, and certain administrative

operations of University of Baguio are the areas studied.

Universities use energy in many types of facilities,

including classroom buildings, residences, laboratories,

performing arts venues, and sports facilities. University

parking lots and walkways use electricity to provide

lighting. Heating, ventilation, and air conditioning units

consume energy from natural gas, liquid propane, and

electricity. Activities related to grounds keeping,

transportation, and security also consume fossil fuels and

electricity.

Universities’ air emissions originate primarily from

fossil fuel combustion, but also from various sources and

refrigeration systems. Indirect air emissions include

emissions related to vehicle use and maintenance, campus

transit systems, commuting, deliveries, and generation of

purchased electricity.
 The Problem 4

Facilities of universities use water in many ways,

including academic and residential buildings, student

centers, cafeterias, laboratory and sporting facilities,

hospitals and clinics, and landscaping and agricultural

operations. For most universities, clean water comes from

publicly owned facilities, and water discharges are sent to

public drainage.

Universities generate hazardous waste from a variety

of activities, such as laboratories, operation of pollution

control devices, or remediation of past contamination.

In the Philippines, increased investor confidence,

accelerated economic activity, and a consistent growth in

Gross Domestic Product (GDP) has made the Philippines one

of the fastest growing economies in Asia. Parallel to this

growth, rapid urbanization, climate change, and non-

judicious use of natural resources pose risks to the

country’s progress and sustained economic prosperity

(Wealth Accounting and the Valuation of Ecosystem Services

– Philippines, 2016). Economic progress is directly related

to the use of nation’s natural resources. The improving

economic position of the Philippines exposes the country to

the risks of unparallel environmental sustainability.

WAVES (2017) noted that “The implementation of

environmental accounting in the Philippines is timely, as

 The Problem 5

the current administration emphasizes governance reforms

that include transparent and science-based decision making

while pursuing sustainable, inclusive, and resilient

growth”.

Former NEDA Director-General Arsenio M. Balisacan

stated that “Through EA, the worth of a service that we get

from the natural environment will become known to us and if

this is taken into account directly in the estimation of

national incomes, policymakers may now make better

decisions about development priorities and investments,

while promoting a more sustainable use of natural

resources” (NEDA, 2015).

Department of Environment and Natural Resources (DENR)

Undersecretary for International Affairs and Foreign-

assisted Programs Jonas Leones said that the implementation

of environmental accounting in the Philippines would enable

policymakers to come up with informed policies based on

generated data regarding the monetary values environmental

accounts and ecosystem services (Miraflor, 2017).

Based on the citations above, it is only in this year,

2017, that the integration of environmental accounting in

the Philippines is adopted. Therefore, it is timely for the

institutions and organizations in the Philippines to adopt

environmental accounting.
 The Problem 6

As the Cordillera economy continues to capitalize on

its water, forest, mineral and other natural resources in

its quest for higher economic growth, concerns have been

raised as to the physical and monetary impact of this

economic growth on the environment. The question of long-

term sustainable growth has been raised and begs to be

answered.

The piloting of the Philippine Economic-Environmental

and Natural Resources Accounting (PEENRA) in the region,

under funding support from the United Nations Development

Program (UNDP) aimed to generate physical and monetary

estimates of the depletion of selected natural resources

and the degradation of environmental media due to selected

economic activities. Moreover, the piloting also aimed to

determine the feasibility and usefulness of environmental

accounting at the regional level.

PEENRA is in line with the desire of the region to

build and institutionalize an updated databank of

sustainable development indicators, a key strategy of the

CAR Regional Development Plan. The databank provides

sufficient and timely knowledge about the state of CAR's

watersheds and its natural resources. It is expected to

improve policy-making for natural resources management and

help identify appropriate industries that should be

 The Problem 7

encouraged and supported within the region. (Philippine

Statistics Authority, 2013)

In the CAR region, related environmental accounting

initiatives had already been started. However, the lack of

focus on the projects had made them remain as expectations.

Only in this year, 2017, that the national level pushed the

regions to adopt environmental accounting.

The succeeding part of this section discusses the

concept of environmental accounting.

The National Economic and Development Authority (2015)

stated, “The integration of natural capital accounting or

Environmental Accounting (EA) in national and regional

development plans ensures not only the conservation and

protection of ecosystems, but also enables the country to

make progress along the path of sustainable development”.

In the Philippines, NEDA uses the term natural capital

accounting in the same manner as Environmental Accounting.

The Chartered Global Management Accountant (2015) defined

environmental accounting as the identification, collection,

analysis and use of two types of information for internal

decision making. The first is physical information on the

use, flows and rates of energy, water and materials

(including wastes). The second is monetary information on

environment-related costs, earnings and savings.

 The Problem 8

There is no widely agreed definition of environmental

accounts. There is, however, an established definition of

environmental assets, which provides a useful starting

point as far as the development of environmental accounts

is concerned. Environmental assets are defined as “the

naturally occurring living and non-living components of the

Earth, together constituting the biophysical environment,

which may provide benefits to humanity”. This definition

has immediate implications for the nature of the assets

that are covered by the accounts. In terms of surface area,

the accounts mainly relate to what are termed ecosystems,

such as woodland and wetlands. Ecosystems comprise a number

of components, such as water, soil and biodiversity, which

combine together to provide a range of benefits, such as

wild fish and flood protection. The contribution of the

ecosystem to these benefits is known as an ecosystem

service. Since it is the ecosystem as a whole that provides

the services, the accounting system treats the ecosystem as

the asset, rather than the constituent parts. Natural

assets also include non-living or abiotic resources such as

oil and gas and ground-water. (Office for National

Statistics, and Department for Environment, Food and Rural

Affairs, 2017)
 The Problem 9

The World Congress of Accountants in 2014 led by the

Chartered Global Management Accountants in partnership with

Ernst & Young LLP, International Federation of Accountants,

and Natural Capital Coalition summarized:

Natural capital will become as prominent a business

concern in the 21st Century as the provision of

adequate financial capital was in the 20th Century.

Natural capital underpins all other forms of capital,

including financial – ultimately we rely on it for

everything. The demands of an expanding and more

prosperous global population mean that natural

resources and ecosystems are becoming ever more

stretched. We are already ‘drawing down’ on 50% more

natural capital a year than the earth can replenish –

and the rate of depletion is accelerating. All too

soon, businesses will face a stark choice: adapt or

fail. (CIMA, 2014)

With the above concern, it is indeed the right

decision to consider the practice of environmental

accounting in an organization to avoid contingent failure

in the succeeding years.

To further understand the concept of environmental

accounting and the environmental accounts affected by the

use of environmental accounting, the Chartered Global

 The Problem 10

Management Accountants (2017) enumerated the following

management information for corporate activities that affect

the environment:

 Identifying and estimating the costs of environment-

related activities

 Identifying and monitoring the use and cost of

resources such as water, electricity and fuel, so

costs can be reduced

 Making sure environmental considerations form part

of capital investment decisions

 Assessing the likelihood and impact of environmental

risks

 Including environment-related indicators as part of

routine performance monitoring

 Benchmarking activities against environmental best

practice.

The above management information needs are the areas

where environmental accounting could be used in the

management and operations of a business entity. These areas

of management information are derived from the following

costs:

 Prevention costs: costs associated with preventing

adverse environmental impacts.

 The Problem 11

 Appraisal costs: costs of assessing compliance with

environmental policies.

 Internal failure costs: costs of eliminating

environmental impacts that have been created by the

organization.

 External failure costs: costs incurred after

environmental damage has been caused outside the

organization.

With the careful understanding of these costs,

environmental accounting would provide the following

benefits in an organization:

 Improving sales or reducing sales erosion: consumer

awareness of products and services’ environmental

impact is increasingly influencing their preferences

and buying behaviours.

 Reducing costs: reducing wasteful consumption of input

resources has a direct positive impact on reducing

costs. Also, improvements to processes can bear down

on costs.

 Reducing the cost of failure: investing in processes

that reduce the likelihood and cost impact of failure,

such as the need to process waste or clean up

environmental impacts.
 The Problem 12

 Improving the image of the organization: this can

enable it to attract better talent, reduce talent

weakening and charge higher prices.

Although the implementation of environmental

accounting gives the organization promising benefits, there

is still a need to consider first the environmental impact,

opportunities for improvement, and related financial

impacts before such implementation.

Another consideration before the implementation of

environmental accounting, are the related applicable

accounting standards that supports such implementation.

Firoz & Ansari (2010) enumerates the International

Financial Reporting Standards (IFRS) that contribute

towards the monitoring and protection of the environment.

The researchers present the IFRSs below:

 The Problem 13

Table 1. Environmental accounting in IFRS. This table shows

the IFRSs that supports the practice of environmental

accounting in a business entity.

Relevant
paragraph(s).
IFRS/IAS Title and/or
Paragraph Remarks
number description
numbers in
parenthesis
Conceptual Framework for Accountability of Statement to the
Framework the preparation Information(14), effect that
and Relevance of environmental
presentation of Information(26), accounting is
Financial Materiality (29&30), within the
Statement Substance over bounds of the
Form(35), conceptual
Neutrality(35), framework of
Conservatism(37) IASB and FASB
IFRS 6 Exploration & Paragraph (11): Refer to
evaluation of requirement for statistics about
mineral provision and emissions;
resources contingencies production of
pollutants;
toxic waste
disposal
systems, ground
water pollution
& land
degradation;
depletion,
industrial
accidents;
environmental
impact studies.
IFRIC 5 Decommissioning Purpose of fund(1), Disclosure of
restoration & voluntary & required the size of the
environmental contribution to the fund; arms
rehabilitation fund(2), length of the
funds geographically trustees; plans
dispersed sites(2), for additional
independent contributions;
trustees, accounting responsibility
for interest in the for past
fund(7), obligations degradations;
to make additional adequacy of the
contributions (10), fund.
contingent liability
(10),
IAS 8 Accounting Accounting The extent to
policies, policies(10), which past
changes in retrospective earnings require
 The Problem 14

accounting application(22), restatement, and

estimates and warranty how this is
errors obligations(32 &33), going to be
errors(41), prior shown in past,
period errors(49), present and
impracticability of future financial
retrospective statements
adjustments (retrospective &
(51,52&53) prospective
adjustments).
IAS 1 Presentation of Material Minimum set of
financial omissions(7); information that
statements purpose of financial must be included
statements (9), in the
fair comprehensive
presentation(15), financial
rectification of statements of
accounting environmentally
policies(18), going sensitive
concern (25), companies.
provisions (54),
estimation
uncertainty (125)
IAS 20 Government Initial acquisitions Government
Grants of emission rights & grants could be
allowances recorded influenced by
as assets whose the politics of
valuations are the day.
subject to Government can
impairment tests. over/under
supply the
rights
certificates;
endemic
corruptions in
the public
sector might
frustrate the
system.
IAS 37 Provisions, Several paragraphs Absence and
contingent that require inadequacy of
liabilities & charging current provisions
contingent earnings for setting suggests
assets aside normal earnings
provisions and inflation which
contingent in turn affects
liabilities. intrinsic
(fundamental)
values of
equities.
 The Problem 15

Although the above accounting standards support the concept

of environmental accounting, these IFRSs does not

specifically explains the recognition and measurement of

environmental costs, environmental benefits, environmental

assets, and environmental liabilities. The researchers hope

that this research would help answer such issue.

This study about environmental accounting is important

to the society and the world in general, University of

Baguio, to the School of Business Administration and

Accountancy, its students, and to the researchers.

This research is significant to the society and the

world because this research deals with the environmental

needs, issues, and concerns that affect the globe as a

whole which can be used as a reference to address them.

Further, this research provides a basis for future

researchers of organizations that may want to consider

integrating environmental accounting within their

management and operations.

The university would also benefit from this study of

environmental accounting because this study helps the

University of Baguio to determine how they would support

these new accounting techniques because they also benefit

to the success of such implementation-financially and non-

financially. This would also give them more ideas regarding

 The Problem 16

the activities and projects that they would develop for the

university.

The following are the specific benefits the

institution gains from this study:

 The university can use this study to decide on the

full integration of environmental accounting in its

management and operations.

 Possible cost-saving methods may come up from the

study.

 Development of communication link between accounting

and other departments of the university in addressing

environmental problems

 Possible suggestions that may come up from this study

on how to account for environmental costs.

 Possible recommendations on investment decisions on

how to address environmental concerns

This study would inspire the University President

about new techniques and strategies that can help the

entirety of University of Baguio in reducing its cost using

eco-friendly ways.

The study would help the Campus Director in providing

a healthy environment for the students, its faculty and

 The Problem 17

staff in a way that it also benefits the campus in reducing

its costs.

The study about the environmental accounting would

help the OSA Director about the researchers’ action plans

that can contribute to help the students be concerned

environmentally, transforming lives and society.

The findings of the study could provide the management

of University of Baguio Campus insights on how their

current environmental practices relate to the performance

of the institution. With information gathered, the

management could realize the strengths and weaknesses of

the organizations in terms of environmental management

system which could in turn help in the development and in

provision of services. Moreover, this study would

contribute in the realization of the importance of

balancing the priorities of the organization between its

operations and its impact to the community.

The School of Business Administration and Accountancy

would benefit from this study as this would help the

faculty of the college to have timely and relevant

knowledge in accounting and environmental management to

impart to students. This would help them to expand their

understanding of accounting in the academe and have a

 The Problem 18

deeper concern for the environment through environmental

accounting.

The study is significant to Accountancy students

because this study allows for the understanding of

environmental accounting in the university. This would

increase the understanding of how the environmental

management practices of the university relate to their

revenue. Moreover, the study would help them to have new

research agenda related to the topic.

The outcome of the study guides the formulation of

some strategies and integration in the management that

provide direction and ideals for future researchers in the

meeting the needs of the environment in their institutions,

city, municipality, province, region and or country.

This research encourages the University of Baguio

community to consider the role concerning social and

environmental accounting that outline placement ethics

which provides a framework to explore the University of

Baguio of thoughts and possibility on social and

environmental accounting. In this context, it is possible

to move beyond the usual deadlock between procedure and

critique to combine insights from different traditions to

construct new critical and democratic social and

environmental pathways.
 The Problem 19

Theoretical Framework

The theories that the researchers apply are the

contingency theory, institutional theory, legitimacy

theory, and stakeholder theory. These theories have been

used by several researchers to deal with environmental

accounting. Wong (2012) used institutional theory,

legitimacy theory, and stakeholder theory in his thesis

related to environmental accounting. Also, Qian, et al.

(2011) used the stakeholder theory, legitimacy theory, and

institutional theory in their research related to

environmental accounting.

Contingency theory was summarized as an approach to

the study of organizational behavior in which explanations

are given as to how contingent factors influence the design

and function of organizations. Contingency theory has been

applied in management accounting research in order to

address questions about: first, the fit between

organizational control and structure; second, the impact of

such fits on performance; third, investigation of multiple

contingencies and their impact on organizational design

(Islam, J. & Hu, H., 2012).

This theory indicates that an application of

management accounting in an organization should address the

following factors:
 The Problem 20

 the fit between organizational control and

structure,

 the impact of such fits on performance, and

 investigation of multiple contingencies and their

impact on organizational design.

Another theory followed by this study is the

institutional theory which provides a theoretical lens

through which researchers can identify and examine

influences that promote survival and legitimacy of

organizational practices, including factors such as

culture, social environment, regulation (including the

legal environment), tradition and history, as well as

economic incentives, whilst acknowledging that resources

are also important. This theory is also concerned with how

groups and organizations better secure their positions and

legitimacy by conforming to the rules (such as regulatory

structures, governmental agencies, laws, courts,

professions, and scripts and other societal and cultural

practices that exert conformance pressures) and norms of

the institutional environment and environmental accounting

(Glover, et al. 2014).

This theory indicates that accounting practices as

institutionalized routines enable organizations to

 The Problem 21

reproduce a legitimate behavior and to achieve

organizational cohesion.

Legitimacy theory has been utilized a great deal of

research to provide useful insights concerning companies’

behavior towards their society and the environment.

Literature on legitimacy theory indicates that it may help

to explain the motivations of companies to engage in

environmental reporting. It provides a foundation for

understanding how and why companies may use external

reports to benefit themselves. Corporate environmental

disclosure is provided in response to public pressure,

regulation and external economic events. Developing a

conceptual framework of legitimacy theory as a coherent set

of logical elements or principles may provide an

opportunity for more understanding of the nature of

corporate social and environmental disclosures. Social and

environmental reports can be considered the most commonly

accepted vehicle of communication. These reports give a

company the chance to make statements without significant

costs and provide a unique opportunity for a company to

design a positive image with its stakeholders (Mousa &

Hassan, 2015).

This theory indicates that it helps to explain the

motivations of companies to engage in environmental

 The Problem 22

reporting and develop a set of logical elements or

principles that provide an opportunity for more

understanding of the nature of corporate social and

environmental disclosures.

Stakeholder theory is built upon the normative that

businesses should serve a variety of interests rather than

just those of shareholders and in doing so, businesses

achieve superior performance. Likewise if a business does

not consider its stakeholders then its licence to operate

could be revoked by society. In short stakeholder theory

suggests that ‘there is a multiplicity of groups having a

stake in the operation of the firm – all of whom merit

consideration in managerial decision making (Barter, 2011).

According to this theory, the behavior of various

stakeholder groups is considered a constraint on the

strategy that is developed by management to best match

corporate resources with its environment.

As applied to this study, contingency theory,

institutional theory, legitimacy theory, and stakeholder

theory holds that the researchers expect the independent

variables:

 The respondents’ perception of practices that reduce

environmental impacts of UB operations in terms of:

waste management, energy usage, and water usage,

 The Problem 23

 The respondents’ rating of the efficacy of practices

in terms of minimizing environmental costs of UB

operations, and

 The respondents’ rating on the level of compliance of

the university to the applicable environmental

accounting standards,

The independent variables influence the integration of

environmental accounting in the management and operations

of University of Baguio in relation to contingency theory

because these variables affect the organizational control

and structure of the university, the impact of such fits on

performance of the university, and the multiple

contingencies and their impact on organization’s management

and operations. Institutional plays part with respect to

the independent variables as it affects the accounting

practices of the university and enables the university to

reproduce a legitimate behavior and to achieve

organizational cohesion. As well, the independent variables

affect the integration of environmental accounting because

these variables affect the motivations of the university to

engage in environmental reporting and develop a set of

logical elements or principles that provide an opportunity

for more understanding of the nature of corporate social

and environmental disclosures. In relation to stakeholder

 The Problem 24

theory, the independent variables will affect the

integration of environmental accounting because these

variables affect the behavior of various stakeholder groups

of the university, and are constraints on the strategy of

the university to develop a management and operation that

best match corporate resources with its environment.

This part of the study discusses how the research

propositions were created using the theoretical

perspectives discussed above. These research propositions

guide the researchers in formulating research variables in

this study. Creswell (2013) conveyed his theory of

influence processes as a series of 15 hypotheses. One of

the hypothesis is that the higher one’s rank, the greater

one’s conformity. Therefore, the following are the

propositions developed in this study:

P1. The higher (lower) the respondents’ perceptions of

practices that reduce environmental impacts of UB

operations in terms of: waste management, energy

usage, and water usage, the greater (lower) the

likelihood of the integration of EA in the management

and operations of UB.

P2. The higher (lower) the respondents’ rating of the

efficacy of practices in terms of minimizing

environmental costs of UB operations, the greater

 The Problem 25

(lower) the likelihood of the integration of EA in the

management and operations of UB.

P3. The higher (lower) the respondents’ rating on the

level of compliance of the university to the

applicable environmental accounting standards, the

greater (lower) the likelihood of the integration of

EA in the management and operations of UB.

This study uses three independent variables, one

dependent variable, and one moderator variable. The

relationship among the variables is discussed on the

theoretical perspective and the integration of

environmental accounting: Research Propositions before this

section.

The three independent variables in this study is the

respondents’ perception of practices that reduce

environmental impacts of UB operations in terms of: waste

management, energy usage, and water usage, the respondents’

rating of the efficacy of practices in terms of minimizing

environmental costs of UB operations, and the respondents’

rating on the level of compliance of the university to the

applicable environmental accounting standards.

The moderator variable in this study is gender.

Zulkifli (2011) used gender as moderator variable in the

study about environmental accounting. The dependent

 The Problem 26

variable in this study is the data on the integration of

environmental accounting in the management and operations

of University of Baguio.
The Problem 27
 The Problem 28

Figure 1 shows the research paradigm in this study. The

research starts with the identification of the respondents

and data to be gathered which is the input of this study.

The effect of the moderating variable is considered in the

process of analyzing the data. It is followed by the use of

questionnaire to gather the data and the use of statistical

tool to determine the relationship among the variables. The

last step is the generation of the output of the study

which is the data on the integration of environmental

accounting in the management and operations of University

of Baguio.

Statement of the Problem and Hypotheses

This study aims to determine the practices of the

university geared toward reducing environmental impact.

Specifically, the following questions are to be

answered by the study:

1. How do the respondents perceive the practices that

reduce environmental impacts of UB operations in terms

of:

a. Waste management,

b. Electrical energy usage, and

 The Problem 29

c. Water usage?

1.1 Is there a significant difference among the

perceptions of the respondents regarding practices

that reduce environmental impacts of UB operations

using gender as a moderator variable?

Null Hypothesis: There is no significant difference

among the perceptions of the respondents regarding

practices that may reduce environmental impacts of UB

operations using gender as a moderator variable.

2. How do the respondents rate the efficacy of practices

in terms of minimizing environmental costs of UB

operations?

2.1 Is there a significant difference among the

perceived practices in terms of minimizing

environmental costs of UB operations using gender as

a moderator variable?

Null Hypothesis: There is no significant difference

among the perceived efficacy of practices in terms of

minimizing environmental costs of UB operations using

gender as a moderator variable.

3. What is the level of compliance of the university to

the related and applicable environmental accounting

standards?
 The Problem 30

3.1 Is there a significant difference among the

respondent’s rating of the university’s level of

compliance to the related and applicable

environmental accounting standards using gender as a

moderator variable?

Null Hypothesis: There is no significant difference

among the respondent’s rating of the university’s level of

compliance to the Sustainability Accounting Standards using

gender as a moderator variable.